Housing starts rose 6.9 percent from May to June, to 760,000 at a seasonally-adjusted annualized rate. Single-family starts were up 4.7 percent over the month, while multifamily (apartment) starts were up 12.8 percent. There were small upward revisions to starts in April and May.
Permits fell 3.7 percent in June, to 755,000 at an annual rate. There was a 0.6 percent gain in single-family permits and a 10.9 percent decline in multifamily permits; multifamily permits are much more volatile and rose 18.5 percent in May. There was a small upward revision to May permits. Both starts and permits are up from their lows of around 500,000 in early 2009, although they remain far below their long-run averages. The homebuilding recovery started on the apartment side as higher rents spurred construction, but has since moved to the single-family market as excess supply has been worked off in many parts of the country.
Stronger sales and construction are due to a combination of continued growth in the number of households, pent-up demand, very low prices and mortgage rates that have resulted in record-high affordability, an improving labor market, and gradually easing access to credit. The National association of Homebuilders housing market index, which is based on current traffic and expected future sales for single-family builders, jumped in July and is at its highest level in more than five years, although it is still far below pre-recession levels. The NAHB index indicates that single-family construction will continue to improve in the near term.
Residential construction will add to economic growth this year and next. PNC’s forecast is for single-family housing starts of around 500,000 this year and 540,000 next year, up from 430,000 in 2011. Multifamily starts will be around 240,000 in 2012 and 270,000 in 2013, compared to fewer than 180,000 last year. The improvement in homebuilding will support employment gains in construction.
Between better homebuilding and stable house prices, the housing market will contribute to economic growth in 2012 for the first time since 2007. However, residential construction now directly accounts for only 2.5 percent of real GDP, down from nearly 7 percent at its peak in 2006-2007. The contribution will be larger next year as homebuilding continues to increase, foreclosures work their way off the market, and prices see more consistent gains. With the dearth of new homes built over the past four years, significant pent-up demand, very high affordability, a falling unemployment rate and a gradual relaxation of mortgage lending standards, the housing market will help drive the moderate U.S. economic expansion over the next two years.
To learn more about economic matters impacting the construction industry or to contact an accounting professional servicing this market, please contact the construction professionals of McKonly and Asbury, LLP.